Monday, February 20, 2012

Black Friday/HB 1129 Cuts Retirment Benefits for Current and Future VRS Members

Black Friday was highly successful in Bristol, Virginia. Kudos to the Bristol Education Association! Check out the news coverage of their protest. For those who haven’t been to this wonderful city on the Virginia/Tennessee boarder, put it on your list of places to see. You can cross from one state to another by walking across the street, and a meal at the Troutdale Bistro will make you think you have died and gone to heaven.

This bill modifies several provisions of the defined benefit retirement plan.

Beginning January 1, 2012:

Calculation for average final compensation (AFC) will use the average of 60 months rather than the current 36 months; current employees may use a “frozen” 36 month AFC rather than the 60 month average if their benefit would be higher. The JLARC study estimates a 10 year savings of $509.5 million.

Except for those members who are within 5 years of unreduced retirement, the Cost of Living Allowance (COLA) will be given for the first two percent of inflation plus one-half of the next two percent, for a maximum total of three percent (The current total if five percent).

Lowers multiplier from 1.7% to 1.6% for those members hired on or after January 1, 2013, except for hazardous duty employees and judges.

Early Retirees receive no COLA until 65/30. The JLARC study estimates a 10 year savings of $430.4 million.

Note: In HB 30 localities can require those hired before July 1, 2010 to pay all or a portion of the 5% employee contribution without an offsetting salary increase.

When we discuss retirement reform and HB 1129, it is important to note six things.

1. As a percentage of budget, Virginia is paying half (1.65%) toward the pension costs of employees as the average state (3.80%). – Boston College Center for Retirement Research

2. “Since 1992 … the teacher’s plan rates have been fully funded in only two years.” – p. iv, JLARC Review of Retirement Benefits for State and Local Government Employees

3. The VRS benefit structure is modest when compared to those in other states. “Nationally, for states that participate in Social Security, the average benefit multiplier is 1.97 percent.” – p. 60, JLARC Review of Retirement Benefits for State and Local Government Employees

4. According to the fiscal impact statement:

“This bill has significant cost associated with system development, publications, and training, these cannot be ascertained at this time.”

“VRS estimates that costs (other than system costs addressed above) would be approximately $377,795.”

“… the reductions in costs associated with these plan design changes will only be fully realized many years into the future.”

5. This bill changes the benefit for all current school board employees who are not within five years of their unreduced retirement date on July 1, 2013. This constitutes a “bait-and-switch” as these employees signed their contract with an understanding of the retirement benefits they would earn. As the fiscal impact statement for the bill states, this “can be challenged, and there is very little Virginia precedent on these issues.”

6. This bill significantly reduces retirement benefits to the extent that the purposes of our retirement system will not be fulfilled: to recruit high quality personnel to our schools, to retain these employees, and to allow employees timely retirement with an adequate income. This bill penalizes employees for the mismanagement of the VRS system by the General Assembly and breaks the promise made by the Commonwealth to VRS members.